Following our previous article outlining the Coronavirus (COVID-19) related measures recently introduced by the UK Government to provide liquidity support for UK businesses, employees and self-employed contactors, the UK Government and HM Revenue and Customs (HMRC) have since announced additional measures.
Coronavirus Self-Employment Income Support Scheme
In response to public pressure for measures to support the United Kingdom’s 5 million self-employed individuals who have suddenly lost all or a significant proportion of their income due the COVID-19 crisis, the Government has announced plans to provide financial support to self-employed workers facing financial difficulties. The plans are comparable with the Coronavirus Job Retention Scheme for employees. Under the scheme, self-employed taxpayers will be able to apply for a grant worth 80% of their average monthly profits over the last three years (up to £2,500 a month) for at least three months, with a possible extension if necessary. These grants will be taxable, and will need to be declared on tax returns by January 31 2022.
The Government anticipates that 95% of majority self-employed will benefit from this scheme. The scheme neither applies to company directors nor IR35 contractors operating through a personal services company; though the latter may be eligible for assistance under the Job Retention Scheme if they currently pay income tax and National Insurance Contributions (NICs) under the PAYE system.
Unlike the Coronavirus Job Retention Scheme, which applies to furloughed employees only, self-employed individuals may continue to work while still eligible for the scheme. The scheme is targeted at up to 3.8 million of the 5 million people registered as self-employed earning £50,000 or less. The money, backdated to March, will arrive directly into individual bank accounts from HMRC as a lump sum for all three months. HMRC are working to ensure that the grants will be accessible by no later than June 1.
The Chancellor has also commented that there was no longer a justification for the self-employed paying less tax than employees. This may hint at an upcoming review of the tax treatment of self-employed individuals, with a view to aligning their tax position more closely with that of employees. Any such review could impact and possibly even negate the need for the current IR35 rules and related forthcoming off-payroll reforms.
Potential UK Tax Implications of Worldwide Travel Restrictions
Non-UK Resident Individuals
Individuals who would otherwise be considered non-UK resident for UK tax purposes may find themselves stuck in the United Kingdom given current travel restrictions. In these circumstances, HMRC will allow such individuals a grace period of 60 days’ physical presence in the UK before any count towards the minimum UK thresholds required to establish UK residence under various statutory residence tests. Further details can be found in our alert: COVID-19: HMRC Clarifies Exceptional Circumstances Under Statutory Residence Test.
Non-UK Incorporated Companies
Non-UK incorporated companies that are centrally managed and controlled in the United Kingdom may find their UK tax residence status jeopardized if, for example, a majority of directors are non-UK resident for the tax year 2020/21 and are unable to travel to the UK to attend board meetings owing to aforementioned travel restrictions. This situation may lead to adverse tax consequences, notably UK exit charges, and the possibility of acquiring tax residence in another jurisdiction. Companies that are in danger of losing their UK residence should consider having directors delegate their board powers to appropriate UK resident individuals within the organization for the duration of the crisis.
Inadvertent Creation of Permanent Establishments
The sudden decision to switch to remote working due to mandatory office closures may inadvertently create a permanent establishment in the country in which employees are based. For example a senior employee (e.g. a director) habitually exercising authority in a particular country to conclude contracts on behalf of his or her employer may create a permanent establishment of their employer in that jurisdiction. Companies in these circumstances should consider adopting protocols allowing individuals in the same country as their employer to authorize and conclude contracts. This will reduce the risk of a permanent establishment being created in the employee’s home country, although this is dependent on the wording of the applicable double tax treaty.
Some tax authorities have published guidance stating that corporate residence will not be jeopardized and no permanent establishment will be created in the above-mentioned circumstances. HMRC remains a notable exception, and it is to be hoped that similar guidance will be forthcoming.
New HMRC Guidance on Working-from-Home Expenses and Benefits: Taxable or Not?
Where UK employers have asked employees to work from home as a result of mandatory workplace closures, the expense incurred on certain items for employees will either be taxable or not. Taxable expenses or benefits which are COVID-19-related can be reported on a PAYE Settlement Agreement. Examples of non-taxable items include mobile phones and SIM cards with no restriction on private use, as well as laptops, tablets, computers and office supplies provided mainly for business purposes. These items do not need to be reported to HMRC.
VAT Deferrals – Cancel your Direct Debit!
UK VAT-registered businesses that pay their VAT by direct debit should cancel their direct debt as soon as possible to take advantage of the ability to defer VAT payments until March 31 2021. For further details on VAT deferral arrangements, see our previous article.
Estate Agents, Letting Agencies and Bingo Halls to Pay No Business Rates for the UK Tax Year 2020/21
Estate agents, letting agencies and bingo halls closed as a result of COVID-19 measures to restrict the spread of the virus will now be exempt from business rates for the UK tax year April 6 2020 to April 5 2021. This measure follows on from the Chancellor’s announcement in the 2020 Budget that the business rates retail discount would be increased to 100% for that tax year, and would be extended to the hospitality and leisure sectors. The Government will fully compensate local authorities for loss of the business rates foregone.
HMRC Helpline and Time to Pay Arrangements
Since our previous article, HMRC have changed their helpline number for businesses and individuals experiencing financial difficulties who have outstanding tax liabilities and who wish to consider a Time to Pay arrangement. The number is 0800 024 1222.
Electronic Submissions for Stamp Duty Filing
Until now, HMRC’s Stamp Office have required physical presentation of an original signed and dated stock transfer form for stamping, together with payment of the appropriate stamp duty. Due to lockdown measures recently put in place by the UK Government to stop the spread of COVID-19, HMRC have now made it possible for stock transfer forms (including SHO3 forms for share buy-backs and other instruments of transfer) to be submitted electronically by pdf file to the following email address for stamping: email@example.com. The stamp duty must be paid before HMRC can process the stock transfer form or other relevant instrument. Payment can be made by bank transfer, CHAPS payment or cheque. If no stamp duty is due but application for relief is sought (most commonly group relief), an electronic version of the original stock transfer form, together with any relevant enclosures, should be submitted to that email address for adjudication by the Stamp Office.